Events in the real world do not always fit neatly within the bailiwick of one regulator. When corporations and businesses push the envelope (as they often do), they frequently traverse several regulatory jurisdictions. So there will be real advantages for regulators in cooperating with other regulators who may be targeting the same entities, for different conduct.
Joint investigations can help reveal multiple dimensions to actions and behaviours, and achieve resourcing efficiencies, as well as enabling sharing of information and intelligence.
At the same time, joint investigations can create risks, which need to be understood and managed. Joint investigations will almost inevitably lead to shared or common objectives – multiple regulators will want information from the same sources, albeit to use for different purposes. This can create a risk that one regulator finds itself exercising powers (partly or wholly) for the benefit of the other regulator…and that is a dangerous place for a regulator to be.
There are at least three kinds of risks for joint investigations.
- the risk the investigation itself will be challenged on the basis that it is for an improper purpose, or beyond power
- the exercise of statutory powers to obtain evidence and information in the investigation will be challenged on the basis of improper purpose
- exchanges of information between regulators as part of a joint investigation or otherwise can give rise to a slightly different risk.
We shall look at each of these separately.
Challenges to the investigation
In Church of Scientology v Woodward [i], the Church of Scientology challenged the Australian Security Intelligence Organisation’s (ASIO) investigation into its activities on the basis that ASIO was acting outside its statutory powers and functions, all of which (in essence) related to ‘security’. The High Court decided that ASIO was not empowered to conduct the investigation into the Church – its investigation was not for ‘security’ purposes, but for an impermissible purpose[ii]. So, a whole investigation can be found to be beyond jurisdiction, if attention is not paid to the purposes of a regulator’s legislation.
The Essendon Football Club fared less well in its challenge against the joint investigation carried out by the Australian Sports Anti-Doping Authority (ASADA) and the Australian Football League (AFL).[iii] The Federal Court decided that the fact that the ASADA legislation did not authorise a joint investigation was not to the point and that “whether any investigation is lawful or not will depend upon the characterisation of its purpose, and the conduct and nature of that investigation”.[iv] In this case, it was sufficient that ASADA’s investigation was for the purpose of investigating anti-doping violations. Not only did the Court find that there was no improper purpose in ASADA’s investigation, but it also confirmed that, for Essendon to succeed, any such improper purpose would have to be shown to be so substantial that the decision to investigate would not have been made without that improper purpose.
Challenges to the exercise of investigatory powers
Investigations usually rely on the exercise of statutory powers to produce information and evidence for the investigation, including the issuance of notices requiring information or documents to be produced to the regulator, or requiring persons to be examined on oath.
But the desire to obtain information for a partner regulator may infect the exercise of regulatory powers by a regulator. Under administrative law, statutory powers – such as powers to seek information or obtain documents – must be exercised for a proper purpose[v]: Undoubtedly…it is an abuse of power to use a power conferred for one purpose, for a different purpose.[vi] Ultimately, it is necessary to look at the purposes for which a statutory power was conferred to determine whether the power was exercised for one of those purposes.
The risk to be avoided is that, in the enthusiastic cooperation of a joint investigation, the separate purposes of the different regulators involved become confused or muddied. If one regulator signs and serves a notice on an investigated entity, for purposes including a purpose of obtaining information for another regulator, the investigation has strayed into dangerous territory.
Several things may happen. The regulated entity may challenge the issue of the notice, on the basis that the statutory power to issue the notice was exercised for an ‘improper purpose’. Or the regulated entity may provide documents in response to the notice, and subsequently challenge the admissibility of the documents into evidence on the same basis. Evidence which has been obtained unlawfully or improperly may be excluded from being received into evidence by the courts.[vii]
These risks can be managed, however. It is important in joint investigations to ensure that there is clarity in the purposes for which statutory powers are to be exercised. It is prudent to ensure that those purposes are articulated in any documents supporting the issue of a compulsory notice, like a notice to produce documents. That approach will minimise the risk of successful challenges to investigations, and will help ensure that investigations are not delayed by challenges to the issue of notices, or to the investigation itself.
But while the suspicion that an investigation, or the exercise of statutory powers, has been tainted by extraneous or improper purposes creates a risk that the investigation or relevant exercises of power will be challenged, the challenger will find that it has a number of hurdles to overcome.
- The onus will be on the entity challenging the exercise of power on the basis of improper purpose to establish the existence of an improper purpose [viii]. Moreover, an improper purpose is not to be lightly inferred.[ix]
- The challenger will need to prove that the improper or extraneous purpose was such a substantial purpose that the decision would not have been made but for that ulterior purpose.[x]
These barriers are not easily surmounted. But any lack of clarity can leave a regulator exposed to a challenge that can be time-wasting and costly, both in financial and human resources.
The moral, therefore, is that regulators participating in joint investigations need to maintain clarity about the purposes of that regulator’s investigation, and about the purposes for which statutory powers are being exercised. It is important not only to be clear about these things, but to make sure the documents underpinning the investigation and the exercise of powers are clear in articulating those purposes. Any confusion about purposes or objectives may fuel a challenge which may well be time-consuming and expensive, even if ultimately unsuccessful.
Challenges to passing information from one regulator to another
Whether during a joint investigation or merely as part of one regulator cooperating with another, it will often be desirable for information acquired using statutory powers to be shared with another regulator.
There are at least two aspects to this process that need to be navigated successfully.
First, there are usually ‘secrecy’ or ‘confidentiality’ provisions in a regulator’s legislation that need to be complied with. They may restrict the provision of information obtained under the legislation to other entities, including other regulators. Or, if the sharing of information is permitted, they may require a responsible person to make a decision that it is in the ‘public interest’ to disclose the information. Regulators will usually be familiar with these provisions, and the processes needed to comply with them.
Less obviously, a regulator may need to accord ‘natural justice’ or ‘procedural fairness’ to the person from whom the information was obtained before disclosing it to another regulator. Where information is obtained through the use of compulsory powers, and it is proposed to pass that information on to another regulator, a duty to put the proposal to the person who provided the information and to accord procedural fairness may be required.
In the seminal case Johns v ASC [xi], the High Court found that the Australian Security Council’s (ASC) decision to provide the transcripts of a compulsory examination to a State Royal Commission was invalid, because the ASC ought to have given the examinee the opportunity to oppose that course. Key to that decision was that the Australian Crimes Commission (ACC) proposed to use the transcripts or the information they contained, in public hearings.
But in LHRC v Deputy Commissioner of Taxation (No 3)[xii], the Federal Court decided there was no obligation to accord procedural fairness before the ACC, released a transcript of one of its examinations to the Australian Taxation Office (ATO). This was essentially for two reasons.
- there was no question of public disclosure of the transcript by the ATO.
- the disclosure of the information was authorised under the ACC Act 2002 (Cth), and not prohibited by the confidentiality directions made at the examination.
The message from this is simply that consideration should be given to the question of whether natural justice must be accorded to a person who has given information in response to a compulsory process, before that information is passed on to another regulator. It is less likely that natural justice is required, if the information to be passed to the second regulator is not to be made public. Of course, where ‘personal information’ may be disclosed, the provisions of the Privacy Act 1988 should not be neglected.
Joint investigations can be useful vehicles for regulators cooperating in pursuing their regulatory objectives, in a way that is mutually beneficial. While there are some legal risks that need to be managed, they are all eminently manageable, and should not deter regulators from working together.
|Chris Reid | Special Counsel
T +61 2 6120 4824
|Varsha Srinivasan | Graduate Lawyer
T +61 2 6120 4844
[i] (1982) 154 CLR 25.
[ii] Church of Scientology v Woodward was not a case decided on the basis of ‘improper purpose’. Nevertheless, the fact that the investigation was for impermissible purposes was the basis for the finding that the investigation was beyond power.
[iii]  FCA 1019.
[iv] At paragraph 406.
[v] Or at least, not for an ‘improper’ purpose – see paragraph 5(1)(e) of the Administrative Decisions (Judicial Review) Act 1977 and subsection 5(2) which elaborates that an improper exercise of power is an exercise ‘for a purpose other than a purpose for which the power is conferred.’
[vi] Per Middleton, J Essendon Football Club v Chief Executive Officer of the Australian Sports Antidoping Authority  FCA 1019 at paragraph 434.
[vii] See eg s.138 of the Evidence Act 1995 (NSW), Ridgeway v The Queen (1994) 184 CLR 19.
[viii] See for instance Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 per Gaudro J at 671.
[ix] National Aboriginal and Islander Legal Services Secretariat Aboriginal Corporation v Register of Aboriginal Corp (1998) 54 ALD 55.
[x] If the power is exercised for more than one purpose, where one of the purposes is improper, the exercise of the power will be vitiated if the improper purpose was a substantial purpose in the sense that the decision would not have been made but for the ulterior purpose…’ Merkel, J in Kazar v Duus (1998) 88 FCR 218.
[xi] (1993) 178 CLR 408.
[xii]  FCA 52.